Withholding tax and advertising: some more info!

The issue of withholding tax when booking advertising on the Internet, especially on Google, has been boiling up quite a bit in recent weeks. I have already written something about this here and here. In addition, I have already received some feedback on it.

The literature also deals with the problem, especially since there are probably already numerous notices from German tax offices and it is advisable for every company to take precautions in order not to get into bigger problems soon. Agencies and large advertisers in particular are likely to be affected. This is because in the case of net agreements, the extra withholding tax to be paid could concern 18.8 percent of the advertising expenses, i.e., for 100,000 euros spent on advertising, almost 20,000 euros in extra taxes.

But, since I don’t want to repeat myself, a few counter-arguments should be addressed in this article. Without going into too much – tax law – detail.

Thus, those who attack the statements of some tax offices and tax auditors deny that booking Google ads would be a transfer of the use of know-how of the portal operator. The advertiser will only ever receive the result of the know-how used, not the actual know-how itself. Therefore, the transfer of use of a right within the meaning of Section 49 I No. 2f or No. 6 of the Income Tax Act could not be involved. Some critics therefore point out that Google Ads and similar offers would simply be a service, which is also confirmed by the OECD-MK on Art. 12 OECD-MA. Only the optimal placement of an ad would ever be offered. However, whether a distinction would already have to be made here, for example, between Google ads in the search results and Google ads in the search network is likely to be at least debatable. Whether the question of whether someone books, for example, a billboard exclusively for 4 weeks and sticks his paper poster there can really be distinguished from the fact that a billboard could be digital (see, for example, from the Wall company), where different ads are optimized, is at least questionable. I am not yet in a position to judge conclusively how a court might view this in the end. The same applies to the question of whether one really wants to differentiate between optimized CPC campaigns across several websites (then no withholding tax) and a CPM campaign on a single website, or whether this would not complicate the tax treatment even more.

There are other counter-arguments or at least open questions that are also worth listening to. However, these are not completely convincing either, and they are of course also controlled by interests. In the first step at least, tax offices and auditors are also in the driver’s seat, because a liability notice can be enforced relatively easily. Finally, it is often the case that it is questionable whether one could reclaim paid withholding tax from the advertising provider. Often, the terms and conditions are formulated in such a way that possible withholding tax is to be paid by the advertiser. The additional burden would remain with the company in Germany.

Against the liability notices some legal means were developed in the last week, this must be asserted however also first of all. There definitely causes costs. Clean contracts, cash flows or measures that are correct under tax law/accounting law are certainly the better alternative here. In my opinion, initial feedback on the liability notices has not reduced this risk. For detailed advice on this, please feel free to contact me.

Author: Marian Härtel

Marian Härtel ist Rechtsanwalt und Fachanwalt für IT-Recht mit einer über 25-jährigen Erfahrung als Unternehmer und Berater in den Bereichen Games, E-Sport, Blockchain, SaaS und Künstliche Intelligenz. Seine Beratungsschwerpunkte umfassen neben dem IT-Recht insbesondere das Urheberrecht, Medienrecht sowie Wettbewerbsrecht. Er betreut schwerpunktmäßig Start-ups, Agenturen und Influencer, die er in strategischen Fragen, komplexen Vertragsangelegenheiten sowie bei Investitionsprojekten begleitet. Dabei zeichnet sich seine Beratung durch einen interdisziplinären Ansatz aus, der juristische Expertise und langjährige unternehmerische Erfahrung miteinander verbindet. Ziel seiner Tätigkeit ist stets, Mandanten praxisorientierte Lösungen anzubieten und rechtlich fundierte Unterstützung bei der Umsetzung innovativer Geschäftsmodelle zu gewährleisten.